No contest clauses were originally referred to as “In Terrorem” clauses. In Terrorem is Latin for “To Scare the Pants off my Beneficiaries”—loosely translated. And that’s what a no contest clause is supposed to do, prevent a trust or will contest by disinheriting a beneficiary who dares to contest the terms of the instrument.
California has a love-hate relationship with no contest clauses. And their application seems to be in constant flux. For example, prior to January 1, 2010, all no contest clauses were enforceable except for clauses that pertained to certain protected actions—such as challenging the actions of a trustee or filing a creditor’s claim. And the law allowed a beneficiary to receive an advanced ruling from the court (called Declaratory Relief) to determine that a proposed filing would or would not be a contest. The advanced ruling process allowed beneficiaries to test the waters before committing themselves to a filing that could later be deemed a contest.
That all changed effective January 1, 2010, when a new law came into effect that radically changed the application of no contest clauses in California—in the hopes of making them easier to apply. Let’s test that theory: under the new law, no contest clauses in wills and trust are generally unenforceable except certain narrowly defined actions. These narrowly defined actions include:
- A direct contest against the instrument based on things like lack of capacity, undue influence, fraud, lack of proper signing,
- Filing a petition to transfer title in property into or out of a trust or an estate, or
- Filing a creditor’s claim.
These actions only trigger the no contest clause if: the precise action is stated in the clause itself, and the action is brought without probable cause. Sound simple?
Furthermore, the advanced ruling procedure (the Declaratory Relief referenced above) has been abolished. So now beneficiaries must take their chances in filing a petition. If a beneficiary contests a trust or will and wins, then the no contest clause does not apply and the beneficiary is happy. If a beneficiary contests a trust or will and loses, the no contest clause may apply (if it falls into one of the three categories set forth above) and then the beneficiary must argue whether they brought their action with “probable cause.” If the beneficiary has probable cause, then no harm, no foul and the beneficiary is not disinherited. If there is no probable cause, the beneficiary loses all interests in the trust or will.
So what then constitutes “probable cause?” Impossible to say at this time because there have been no cases on this issues to date. But rest assured, case law will be coming because the new law is perfectly primed to result in voluminous litigation. Not the easy application the legislature was hoping for, but a good way to keep trust litigation attorneys fully employed.